Mario Tama
Funding Thesis
Rivian’s (NASDAQ:RIVN) upcoming Q3 earnings are poised to be a major inflection level for the corporate, particularly following the market’s jittery response to its preliminary gross sales figures and the announcement of a considerable convertible be aware providing. Regardless of a promising begin and beating supply estimates, Rivian faces challenges typical of the EV sector, together with important money burn, manufacturing ramp-up, and the necessity for steady capital injection for innovation and enlargement.
The corporate’s sturdy partnership with Amazon, a crucial stakeholder, provides a precious dimension to its enterprise mannequin, emphasizing Rivian’s potential as a strategic acquisition goal. A possible sale may bolster Rivian’s monetary stability and operational scalability, offering an acquirer with established EV expertise and an enhanced provide chain. Administration ought to take into account it.
Rivian’s journey to profitability (by itself) is doable however laden with hurdles, together with anticipated continued losses, the current departure of Ford as an investor, and the broader complexities of the automotive business’s shift to electrification. The forthcoming detailed Q3 financials will probably be essential in assessing Rivian’s present well being and future prospects, and administration ought to take the chance to discover all choices, together with the exploration of a sale. Whereas the notion just isn’t at the moment supported by administration commentary, the advantages of such a strategic transfer may very well be substantial, each for Rivian and a possible suitor, providing a safer path ahead within the aggressive EV panorama.
Introduction
As Rivian Automotive Inc. prepares to launch its Q3 earnings, the corporate is at an inflection level. After a preliminary quarterly gross sales estimate that despatched the corporate’s inventory plummeting by 23%, buyers are eagerly anticipating the complete monetary image. The preliminary income announcement of $1.29 billion to $1.33 billion was beneath market projections, and the revealing of a $1.5 billion convertible be aware providing sparked issues concerning the firm’s monetary well being, particularly throughout its crucial manufacturing ramp-up section. In opposition to this backdrop, I consider Rivian administration ought to take into account strategic choices, together with a possible sale, to safe its place within the extremely aggressive electrical automobile (EV) market.
Rivian’s Monetary and Operational Panorama
Regardless of the market’s response to its preliminary Q3 figures, Rivian’s financials painting an organization with important potential. Their supply numbers beat and administration really elevated supply estimates for the 12 months to 52,000 from 50,000. Ending Q2 with a sturdy $10.2 billion in money and credit score amenities, Rivian has been channeling its sources into essential progress initiatives, reminiscent of the event of the brand new Georgia plant. Nonetheless, the corporate’s substantial money burn, which noticed reserves fall to $9.1 billion in Q3, alerts a necessity for buyers and administration to consider future potential. Whether or not Rivian charts this path independently or considers aligning with a bigger automotive entity, its monetary trajectory requires cautious navigation.
Certainly one of Rivian’s standout strengths is its meticulously developed EV battery provide chain, positioning it as a fascinating asset amidst the business’s ongoing provide chain challenges. The corporate’s capability to navigate world provide chain disruptions extra successfully than a lot of its friends underlines the strategic worth it may supply to a possible acquirer.
Rivian and Amazon
A Strategic Alliance
The alliance between Rivian and Amazon (AMZN) is one other spotlight of Rivian’s strategic portfolio. The partnership, which features a dedication to ship 100,000 electrical vans by 2030, not solely underscores a mutual dedication to sustainability but in addition enhances Rivian’s attractiveness as a possible acquisition goal. Amazon’s 17% stake in Rivian, mixed with the e-commerce big’s curiosity in fostering a cost-efficient, in-house supply community utilizing Rivian’s expertise, speaks volumes concerning the belief and potential long-term worth inherent on this relationship. A excessive powered industrial automobile partnership like this may very well be a golden ticket for anybody that’s seeking to construct out the fleet facet of their EV enterprise.
Why scale issues
Not too long ago, Rivian famous of their final 10Q:
For the three and 6 months ended June 30, 2023, the influence of the IRA on our outcomes of operations was not materials. We are going to proceed to guage the anticipated future influence of the IRA on our enterprise, monetary situation, and money flows as extra regulatory steering is issued. -RIVN Q2 2023 10Q
Rivian’s clients can largely not entry the profitable IRA (Inflation Discount Act) tax credit score as a result of most of their automobiles are above this promoting value cap of $80,000. This implies rivals like Tesla can promote their Cybertruck (Anticipated MSRP: $40,000) or Ford F150 Lightning (MSRP: ~$50,000) and qualify, consuming market share.
Rivian can not afford to chop the value extra on their vehicles both. They already lose cash on them from a gross revenue foundation (10Q) that means they’ll actually need to scale as much as get higher unit reductions on supplies to decrease the prices on their automobiles.
Evaluating Strategic Choices
The Case for a Sale
Given Rivian’s present monetary standing and market place, exploring a sale may very well be a strategic transfer. The automotive business is witnessing a paradigm shift in the direction of electrification, and conventional automakers are beneath immense strain to revamp their portfolios. For these legacy gamers, buying a longtime EV firm gives a compelling shortcut to gaining a strong foothold on this burgeoning market.
World automakers have collectively pledged $526 billion for the transition to EVs, most of this taking place by 2026. The outcomes have been sluggish and Tesla is leaving many within the mud in the case of EV manufacturing and supply numbers. One thing has to vary. A legacy automaker may purchase Rivian and get one of the spectacular EV startups on the market on their facet.
Rivian, with its superior EV expertise, established provide chain, and the celebrated Amazon fleet contract, represents a complete package deal. A sale to a bigger automaker may present Rivian with the monetary stability it wants whereas providing the customer quick entry into the aggressive EV house. This synergy may very well be notably interesting given the brand new EPA gas pointers, which pose a major problem to conventional automakers.
Not too long ago, Ford filed a discover with the NHTSA saying new EPA emissions requirements may very well be crushing for legacy auto. EVs are clearly exempt from this, however the legacy automakers are largely not producing at a scale but to keep away from these potential penalties. A pair legacy automakers are already paying a whole lot of tens of millions of {dollars} in penalties on present emission requirements. Buying Rivian may assist alleviate this.
Mainly, a legacy automaker will get an EV automaker within the strategy of scaling and that has found out a few of the largest early issues in scaling an EV (together with the battery provide chain) and helps keep away from new EPA rules. It is within the house they need to get into and picks up a profitable enterprise fleet contract from Amazon that might sign and assist get extra contracts within the business. It actually will help them beat Ford within the EV Truck Division (one of many present market leaders). This may really put any agency barely forward (by Q3 EV gross sales) by merely shopping for Rivian. The explanation EV vehicles are so essential is that, traditionally, ICE (Inside Combustion Engine) light-weight vehicles have been probably the most worthwhile line of automobiles supplied by legacy automakers. EV vehicles have the identical potential. Nonetheless, the EV truck market seems saturated, with some legacy automakers pulling again scaling up manufacturing on EV vehicles.
Consolidating EV gross sales beneath one legacy auto maker will permit the automaker to hit scale, decrease the prices of the automobiles to qualify for the IRA $7,500 tax credit score, and decide up experience of their battery provide chain and assist keep away from EPA emission dangers.
|
Mannequin (Model) |
Q3 Gross sales |
|
EDV500/700 [Amazon] (Rivian) |
2,645 |
|
R1T (Rivian) |
3,736 |
|
E-Transit (Ford) |
2,617 |
|
F-150 Lightning (Ford) |
3,503 |
Valuation
As per Rivian’s Q2 2023 10-Q, the corporate incurred a web lack of $1.2 billion within the quarter. Rivian’s capability to achieve profitability is dependent upon elements like demand for EVs, shopper adoption charges, and its functionality to handle prices and obtain economies of scale. Rivian acknowledged that because it continues investing for progress, together with increased working bills and capital expenditures, it expects “to expertise extra losses, which may delay our capability to realize profitability and constructive working money circulation” (10Q). As well as, the agency plans to spend over $5 billion on the manufacturing facility advanced in Georgia. This can (given they’ve $9 billion in money at the moment and burn over $1 billion 1 / 4) imply that they nearly actually need to faucet the markets for additional cash past their current convertible bond sale. Their current sale spooked buyers. Their credibility is likely to be operating out.
A purchaser, nonetheless, would solely pay (web of money on the finish of the third quarter) round an EV (Enterprise Worth) of ~$13 billion (assuming a takeover value of $20/share or a ~$20 billion market cap):
|
Internet Value of Acquisition |
RIVN |
|
Present Enterprise Worth |
$8.87 Billion |
|
Share Buyout Worth |
~$20 Billion ($20/share) |
|
Present Market Cap (As of Shut 10/20/2023) |
$15.72 Billion |
|
Money on Hand Finish of Q3 (ex. Convertible Word) |
$9.1 Billion |
|
Internet EV/Takeover Worth: Present EV + Takeover Premium on Shares) |
$13.15 Billion |
The corporate at the moment has a tangible e-book worth of $11.7 billion (2Q 10Q). This tangible e-book worth doesn’t embrace the worth of the Rivian Model (they don’t record any intangible property on their books on the finish of Q2 2023). It additionally prices an automaker $1 billion per new automobile to deliver it to market (Rivian has 2) that means this lineup (as soon as EVs hit scale) may have an intangible worth of $2 billion. This additionally doesn’t embrace the intangible property associated to Rivian’s provide chain they’ve honed since inception, and the model worth of Rivian itself.
Upcoming Q3 Earnings: A Vital Second
As Rivian approaches its Q3 earnings launch, the outcomes will probably be pivotal. Diminished estimates (after the be aware put out by administration earlier this month) are for $1.32 billion in income and a lack of $1.32 a share. The detailed financials, together with any forward-looking statements from the administration, will present a clearer image of Rivian’s present well being and future prospects. Key elements to observe embrace the demand for Rivian’s EVs, the adoption fee amongst shoppers, and the corporate’s capability to handle prices whereas scaling operations. We all know how a lot money they ended with, however the remainder of the small print will probably be key.
Dangers
It is essential to notice that Rivian’s path to profitability seems lengthy. The current exit of Ford as an investor, although presumably a strategic transfer by Ford attributable to its personal EV initiatives, provides a layer of complexity to Rivian’s monetary narrative. Whereas a pushing sale may alleviate a few of Rivian’s monetary pressures, such strategic choices are intricate and multifaceted, with no ensures of this. A Rivian funding proper now seems uneven to me, one with dangers however positively good rewards. That’s why I believe they’ve upside potential.
Conclusion
Because the EV panorama continues to evolve, Rivian stands at a crossroads. Its upcoming Q3 earnings will shed extra mild on its operational and monetary well being, doubtlessly influencing its strategic choices. Whereas hypothesis a couple of attainable sale is theoretical, the advantages of such a transfer are plain and administration ought to take into account. Becoming a member of forces with a bigger, extra financially secure automaker, may permit Rivian may safe its future within the electrical automobile market, accelerating its journey whereas contributing to a greener, extra sustainable automotive business.